Who's On First?

Remember that clever skit Abbott and Costello first performed back in 1940,
I still get a kick out of it whenever I think about it. Here's another one
you may remember, which is centered on the word 'assume'. In the routine, Lou
goes on to show the world that sometimes when you 'assume', you can make an
'ass' out of 'u' and 'me'. Is that what is happening currently in the precious
metals complex, where nervous investors are assuming because we have had a
great run over the past three years, the end of the road must be near. There
certainly seems to be a lot of participants betting that way of late, which
has been a boon to those who remain invested because of the 'wall of worry'
this condition creates. All bull markets are nurtured under these conditions,
and I see no reason to doubt the metals will be any different.

The 'Who's On First' routine was the one that kicked things off for Abbott
and Costello in their first movie One Night in the Tropics, some 63 years ago
now. And like their career(s), which spanned two decades afterward, the precious
metals (PM's) bull market is destined to do the same, where we are in all likelihood
only rounding the corner at 'first base', after hitting a home run for those
who invested three years back. That's certainly the message commodities are
signaling currently, with some rather stellar performances in the broader metals
group painting some very nice pictures of late. (See Figure 1)

Figure 1

As you can see below, copper, which is an industrial metal, makes the energizer
bunny look like he is standing still, vexing ever higher in what appears to
be a sea of liquidity. Many are attributing the dramatic rise in silver this
year as a function of its industrial uses, and has nothing to do with more
traditional currency related considerations. Regarding this unfounded episode
of 'assuming', all I can say is, you never can tell when you are making an
ass out yourself if you are ill-informed, which is the condition amongst these
thinkers at present, in my opinion. (See Figure 2)

Figure 2

If silver is simply a commodity, then one has to question the motivation of
behind its historically high short position currently, primarily held by commercial
banks, who for some reason, do not want true market forces to be expressed,
while holding no such reservations associated with coppers rise against the
box. (See Figure 3)

Figure 3

Are market forces about to overwhelm the banks now however, with silver stepping
up to the batters box to take over where copper may be leaving off for a period?
Well, if silver can muster just a bit more strength against commodities as
a whole, we might be in for some real fireworks soon, which could even knock
it out of the park. (See Figure 4)

Figure 4

And who knows, maybe even the 'barbarous relic', gold, will be able to push
out of it's decade long consolidation against the box. That would really shock
some people. (See Figure 5)

Figure 5

Are there any clues out there, capable of reassuring investors there is a
reasonable probability PM price action, both in terms of scale and direction
(i.e. not against the currency box), are capable of moving higher on an absolute
basis presently? I think so, not the least of which is the technical picture
in oil currently, where we may have yet another batter set to step up to the
plate. (See Figure 6)

Figure 6

The basic underlying assumption a PM bull must make here, is that in spite
of continued volatility in the currency markets, and where up until now, PM's
have been trading primarily as a currency alternative via a defined ratio relationship,
they will begin to act more independently, trading on supply / demand fundamentals.
This task should not be difficult for those aware of what is going on behind
the dollar scene, where the Fed has little reservation applying some oil to
the machinery whenever it slows down, by creating copious amounts of digital
currency, which likes to find opportunities with strong fundamental underpinnings
and a bunch of ill-informed speculators on the wrong side of the trade. Perhaps
that is why this next set of charts look so bullish, with a look at oil against
the box seemingly appropriate at this time. (See Figure 7)

Figure 7

And while it could go either way in the short-term, the fundamentals behind
oil are bullish on an indefinite basis, with no more major finds to be had,
increasing demand, and a money supply machine feeding the pricing mechanism.
Indeed as long as oil prices remain only buoyant, the following charts can't
help but warm the cockles of a gold bugs heart, with significant relationship
shifts and trend changes underway. Here's a peek at gold against oil first,
which appears to be bullishly predisposed at the moment. (See Figure 8)

Figure 8

And if the trend is your friend, which it generally is, then a break out of
this bottoming formation on the part of silver against oil will not hurt matters
for the bullish case going forward, as the last time I checked, and although
more testing of the true trend may be required, both commodities are in up-trends.
(See Figure 9)

Figure 9

To wrap things up, and bring us full circle, since we started with a look
at copper, along with the fact metals like to run together generally, with
industrial metals characteristically taking the lead, here is a view of silver
against copper, which suggests it has a lot of work to do in the future. From
a technical perspective, we could start this process very soon. (See Figure
10)

Figure 10

There you have it, some thoughts and pictures on how gold and silver are shaping
up against commodities, and more specifically, the groups leading them to a
shinning performance sometime in the not too distant future. While nobody knows
for sure how long it will take for PM's to fully express themselves in the
big picture, one thing is certain, the process has begun, and it is progressing
both in scope and magnitude as it matures.

And just like recent price action in some of their counterparts, where unexpected
moves seemingly come out of nowhere, but appear larger than life for those
concerned when they arrive, gold and silver will one day do the same, with
increasing intensity and positive momentum befitting the fundamental backdrop.
So while one should never be expecting a 'home run' to pop up out of the blue,
careful study and ardent planning of your portfolio will pay divides for those
who are aiming at rounding all the bases in the full measure of time.

The only things you have to do are 'hold gold' and 'stow silver' to be there
on those days when it will all seem so blatantly obvious why, and I can assure
you, those days will come at some point.

So, to answer the question "who's on first?" my reply is you are, if you are
a precious metals investor, where you have participated in the top performing
sector of the market over the past three years, and are likely to reap the
benefits of this wise decision well into the future.

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